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Bank Stock Roundup: Some Reasons for Optimism, Wells Fargo and Citi in Focus

Over the last five trading days, performance of banking stocks has been bullish. The 10-year Treasury bond yields escalated at four-year highs on higher-than-expected inflation. Positive economic growth, along with central banks’ moves globally to improve interest rates from ultra-low levels, boosted yields which supported bank stocks, encouraging investors to focus more on bank stocks.

Additionally, investors’ confidence received a boost from President Trump’s much-awaited $200-billion infrastructure plan that rolled out earlier this week.

Mortgage rates were also on an upswing, hitting a nearly four-year high of 4.38%, as money was pulled out of the bond market. However, homeowners seeking lower rates for refinancing are definitely big-time losers. Increase in mortgage rates will limit reduce refinancing activity.

Further, strategies to enhance profitability through streamlining operations, and resolution of litigations and probes related to legacy matters and business misconducts persisted in the last five trading days.

1. Wells Fargo (WFC - Free Report) entered into an agreement with Popular (BPOP - Free Report) to divest certain assets and liabilities of its auto finance business in Puerto Rico. The all-cash deal is expected to close by mid-2018. Wells Fargo’s auto lending segment landed in trouble last year when its customers were financially hurt due to issues related to auto Collateral Protection Insurance policies. The deal has been valued at $1.7 billion which reflects a 4.5% discount on the value of assets that are to be sold. (Read more: Wells Fargo to Divest Assets of Auto Lending Segment)

2. Citigroup (C - Free Report) is planning to open an innovation center in London, the first strategic step by a U.S. banking giant in the area post Brexit. Jim Cowles, CEO of operations in Europe, Middle East and Africa regions said that Citigroup will hire about 60 technologists for the center. The new lab will support the bank’s global markets and securities services business, and will be part of a network that already employs more than 250 people in labs from Ireland to Israel, Singapore and Mexico.

3. U.S. Bancorp (USB - Free Report) has agreed to pay about $613 million in penalty to the U.S. regulators for deliberate violations of the Bank Secrecy Act by its subsidiary, U.S. Bank National Association. The bank has been slapped with charges of failing to have put together proper anti-money laundering (AML) control programs, along with intentionally keeping itself from reporting a suspicious activity to the authorities.

For a period of nearly six years (ended 2014), U.S. Bancorp was found to have been using weak AML measures. The bank limited the number of suspicious activities that could be identified by its monitoring systems due to limited number of employees present to track them.

4. Bank of America’s (BAC - Free Report) chief executive officer, Brian T. Moynihan, received a 15% hike in his total compensation for 2017. Moynihan received a total compensation of $23 million for year, increasing from $20 million that he received in 2016. Of the total compensation, $21.5 million is in the form of stock grants.

This equity incentive marks an increase from $18.5 million paid in 2016. The remaining $1.5 million is his annual salary, which remained unchanged. Also, he did not receive any cash bonus for the year. (Read more: BofA Raises CEO Moynihan's 2017 Compensation by 15%)

Price Performance

Here is how the seven major stocks performed:

Company

Last Week

6 months

JPM

5.0%

26.0%

BAC

6.2%

32.9%

WFC

6.9%

15.0%

C

4.6%

14.3%

COF

7.2%

18.3%

USB

2.5%

5.2%

PNC

5.4%

24.0%

In the last five trading sessions, Capital One Financial Corp. (COF - Free Report) and Wells Fargo were the major gainers, with the their shares increasing 7.2% and 6.9%, respectively. Furthermore, BofA moved up 6.2%.

BofA and JPMorgan (JPM - Free Report) were the best performers over the last six months, with their stock prices appreciating 32.9% and 26%, respectively. Also, shares of PNC Financial (PNC - Free Report) climbed 24%.

What’s Next?

Over the next five trading days, banking stocks are expected to continue performing in a similar manner unless any unforeseen incident crops up.

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